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A

Report on

MERGER BETWEEN ISPAT WITH JSW

Subject:

Mergers and acquisitions

Submitted to:

Prof. Bhavik Maheta

Prepared By : Pranav Darji (32)

Jitesh kathad (46)

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Brief History:

JSW Steel on Tuesday agreed to pick up 41.29 per cent stake in loss-making IspatIndustries for Rs.2,157 crore.

According to the deal, Ispat Industries will issue to JSW, on a preferential basis,108.66 crore equity shares at Rs.19.85 a share for a consideration of Rs.2,157crore. In addition, JSW will make an open offer to minority shareholders of IspatIndustries according to SEBI guidelines.

The deal with an enterprise value of about $3 billion will increase JSW's combinedcapacity to 14.3 million tonnes annually (tpa) by March 2011.

On completion of the preferential allotment, JSW stake can go up based on the

outcome of the open offer. The existing promoters of Ispat will hold 26 per centstake on completion of the transaction. The lender's holding will come down from12 per cent to around 4 per cent.

Jindal Group Vice-Chairman Sajjan Jindal said Ispat's debt was about Rs.7,500crore and Rs.2,157 crore would go towards lenders, improve cash flow andliquidity of Ispat.

Lenders include IDBI (Rs.3,000 crore), ICICI Bank (Rs.1,800 crore), IFCI(Rs.1,400 crore) and around 8-10 banks (Rs.1,300 crore). JSW will refinance allthe debt and had asked lenders till September, 2011, to bring down the debt cost.The average interest of the debt is 9.9 per cent. New de bt will be raised at around4 per cent lower than this,'' he said adding that Ispat would take 12 months to getback in black.

Ruling out a merger, Mr. Jindal said Ispat Industries would be renamed JSW IspatSteel. Mr. Jindal will be the non-Executive Chairman. Mr. Vinod Mittal of Ispatwould continue as Executive Vice-Chairman during the transition period and lateras non-Executive Vice-Chairman.

On JSW's financing the deal, Mr. Jindal said, the money would come from thesurplus cash on JSW books besides hitherto unavailed sanctioned loans. JSW's networth is Rs.16,000 crore and it has a net debt of Rs.12,000 crore.

Mr. Mittal said Ispat's capital expenditure plans of Rs.3,100 crore were onschedule, which include debottlenecking and raising capacity from 3.3 million tpa

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to 4.2 million tpa. This is besides a power plant, a pelletising plant, a one-milliontpa coke oven and mining development.

Ispat's difficulties emerged from a financial imbalance and lack of integration of key inputs of coke, pellet and power. For the September quarter, Ispat postedRs.377 crore loss. Accumulated losses total Rs.2,470 crore. The plant, shutdownon November 7, has been restarted on December 21.

Speaking on the short-term measures for turning around Ispat, Mr. Jindal, saidsince both companies focus on western and southern India, henceforth, Ispat willsell only in a 200-km radius from its Maharashtra plant and JSW will withdrawfrom Maharashtra.

This will reduce Ispat's average freight from Rs.1,400 to Rs.325 a tonne and for

JSW from Rs.1,550 to Rs.1,400 a tonne.''

Ispat has huge undeveloped assets in terms of coking coal and iron ore. Ispat'smajor problem was power which it procured at Rs.5.50-6 a unit. We will supplypower from our Ratnagiri power plant. Ispat imports coke and pellets but fromApril, 2011, JSW's four million tpa pelletisation plant will come on stream inVijayanagar and we can make some coking coal available to Ispat also. All thesemeasures will bring down operating costs in the short-term.''

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History of Ispat:

Incorporated on 23 may, 1984 In certificate of commencement 8 th Oct. 1985 BSE 531464 ISIN : INE798A01011 IN 2002,BOD Changed

\

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History of Jindal South West(JSW)

Incorporated on 15 March 1994 Certificate of commencement on 8 th july 1994 BSE 500228 NSE: ISWSTEEL ISIN : INEO19A01020 Fastest Growing Business

Awards & Recognition:

JSW Energy Wins Business Leadership Award Karnataka Chapter Safety award 2009 Greentech Environment Excellence award 2009 ISO-14001:2004 Certification PMs Trophy 2007 -08 IMC Ramkrishna Bajaj National Quality Award

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Ispat Merger with JSW steel:

On 21 st Dec. 2010 41% stake in Ispat

JSW Ispat Steel Ltd BSE : 500305 NSE : JSWISPAT ISIN : INE136A01022 Swap Ratio 4:1

Reason of Merger:

Corporate Debt Restructuring (CDR) Debt Of Rs. 7500 crore Capital Expenditure of Rs. 3100 crore

Interest Rate @ 11.75%, instead of 14% and 19%

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Vision

Global recognition for Quality and Efficiency while nurturing Natureand society

Mission

Supporting Indias growth in Steel Domain with speed & innovation.

Core values

Transparency

Strive for Excellence

Dynamism

Passion For Learning

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Finance (Term Loan)

After merge Bank Of India Canara Bank Punjab National Bank And others

SBI has not taken any exposure in term loan

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Benefits of Merger

Huge tax benefits Indias largest producers (14.3 million tonnes) Bring Ispat back to profit path Huge tax benefits of close to Rs 2500 crores to the merged entity Process of restructuring it's Rs 7000 crores debt for it to exit the

Corporate Debt Restructuring (CDR)

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